Building Better Budgets

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From VisiCalc to Lotus 1-2-3 to Microsoft Excel, the electronic spreadsheet has earned a special place in the hearts of finance folk. But when budget time rolls around, that affection can be strained — especially at larger companies, where spreadsheets from many users must be combined. “Spreadsheets weren’t designed as a collaborative tool,” says Henry Morris, an analyst at technology research firm IDC, in Framingham, Massachusetts. “Just passing a spreadsheet around gives you no control.” The result is usually a massive key-punching and quality-control exercise at the corporate level, as spreadsheet data from various departments is painstakingly rolled up into one budget. And the pain isn’t limited to finance: fixing broken links has made “the Excel spreadsheet the bane of IT,” says Morris.

Spreadsheet fans have little to fear: Excel is by far the most widely used budgeting and planning (B&P) tool, and it is still a viable solution for many companies. But to reduce the time and effort spent on budgeting, and to marry planning with reality, many companies are turning to B&P software packages. “Usually around January, when the budget cycle ends, we get a huge number of calls from people saying, ‘I have to get a [budgeting] application, because I’m not going through that spreadsheet hell again,'” says Dan Sholler, senior program director at IT consultancy Meta Group, in Stamford, Connecticut.

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“The whole budgeting process was taking too much time and precluded us from getting into true financial analysis and strategic planning,” testifies Gordon Khan, CFO of Hunter Douglas Inc., the North American division of Hunter Douglas N.V., a $1.4 billion provider of blinds, shades, and drapes. In addition to its headquarters in Upper Saddle River, New Jersey, Hunter Douglas has 28 operating units, each with its own general manager and controller. “Each division had its own spreadsheets — they weren’t standard,” says Khan. “They would send them by E-mail or diskette, and corporate would have to rekey or upload them into corporate Excel spreadsheets to come up with consolidated financial reporting schedules.” Not counting preparation time, the process of submitting the information and making changes took a month and a half.

“Every time you made a change, it could take a week to get the change through,” recalls Khan. What’s more, the small army of consultants maintaining the company’s spreadsheets cost the company $100,000 a year.

At the end of the first quarter of 1999, Hunter Douglas rolled out Cognos Finance, a B&P tool that was known as Lex 2000 until Cognos Inc. acquired it in March 1999. “Now, when the numbers are entered by the divisions, the consolidation is done,” says Khan. “If they want to change something, they hit a button and the consolidation is changed.” And as soon as consolidation is complete, Cognos automatically produces 20 business review schedules created by Hunter Douglas executives. The system is distributed; budgeting and business review templates are installed at each unit. Khan is concentrating on extending the system down to the departmental level, where spreadsheets are still the norm.

Top Down and Bottom Up

Cognos is one of several vendors better known for decision-support applications that have made forays into the budgeting arena. They compete with such B&P heavyweights as Hyperion Software Corp., Adaytum Software Inc., and Comshare Inc. Most B&P applications emulate the familiar layout of spreadsheets, but centralized control helps speed the budgeting process through better workflow. The cost of an enterprise B&P system can easily reach six figures, not counting implementation costs and maintenance fees.

Workflow functionality is an important component of centralized B&P packages. It allows a finance executive to determine at a glance who has and who has not submitted a budget. Likewise, systems with a centralized point of control can instantly alert finance executives when someone’s numbers are out of line or variance tolerances have been exceeded. Not surprisingly, Web technology is increasingly vying with client/server to provide this centralized functionality via corporate intranets and the Internet.

A number of vendors now offer browser-based B&P software. One obvious advantage of such software is that it does not have to be installed on the users’ PCs, which means companies can involve more people in the B&P process. Another advantage is improved collaboration between executives and business-unit managers. Simple enhancements such as the ability to include a note that explains an unusual expense can dramatically improve communication, allowing management to more effectively disseminate its expectations to business-unit leaders (top-down planning). In return, managers on the front lines can respond with more realistic budget numbers (bottom-up budgeting).

“In the past, with spreadsheets, there was a lot of top-down windage on the numbers from headquarters,” recalls Mike Varecka, director of financial planning and analysis for the Employer Services division of Minneapolis-based Ceridian Corp. In March, Ceridian executives decided to install Adaytum’s e.Planning. “With an Internet deployment, I think we have a much better ability to have more participation from front-line people who know what is going on.”

Ceridian, which provides outsourced human resources, payroll, and tax-filing services to businesses throughout North America, has 30 district offices and more than 200 departments around the country. Collecting budget information with spreadsheets was a major headache, says Varecka, and the full budgeting cycle took up to five months. Monthly forecasts of expenses — also sent in on spreadsheet — worked fairly well, he says, “but on the revenue side, it didn’t work at all. There were just too many variables driving a revenue forecast.”

Varecka expects the new software to help management meet its goal of completing the entire budget process in one month — a prospect he views with some trepidation. “There is still a lot of management communication that has to take place that happens outside the [software] tool,” he explains. “But we hope with Adaytum in place, we can get the results of that [communication] built in as efficiently as possible.”

Adaytum executives claim that the company has surpassed market leader Hyperion in the B&P space, if the comparison is made on Web-based applications alone. Hyperion’s client/server product, Pillar, has a large installed base, and it is not yet clear how many Pillar customers will choose to move to Planning, Hyperion’s new browser-based product. The vendor has publicly affirmed that it will continue to support and promote Pillar. This, notes Meta Group’s Sholler, raises the question of which system new customers should choose, while existing Pillar customers must decide whether to upgrade to the Web-based version.

Executives at Conexant Systems Inc., a Newport Beach, California-based supplier of semiconductor products to the communications industry (2000 revenues: $2.1 billion), think moving from Pillar to Planning is worth the effort. Why make the move? Superior scalability, for one: Conexant has 1,200 cost centers, 500 general ledger accounts, and operations in four continents that must be reckoned with.

“Pillar is a client environment — we have to install the software on somebody’s machine,” notes Kuen Chak, financial reporting and analysis manager. The company has about 50 financial analysts and division controllers using Pillar, but the browser will extend the new system to the company’s 400 cost center managers, who currently submit their information on Excel spreadsheets. “The Web will allow the cost centers to enter their own budgets,” says Chak, “and save a lot of time for financial analysts. Central finance can also give them improved top-down direction in forming their financial targets.”

Stuck in the Web

Of course, the Web has some drawbacks as well. Most client/server systems allow users to take a slice of data and work on it offline–a serious consideration for a manager who happens to be on an airplane the day before budget numbers are due.

What’s more, many managers still prefer their Excel spreadsheets. “Every accountant loves Excel,” says Craig Kendall, manager of financial analysis for Wayne, New Jersey­based Saint-Gobain Performance Plastics, which uses Web-based B&P software called BudgetPlus from Comshare. When the system was first rolled out, Kendall was careful to include a staff-written macro that let users cut and paste data from Excel to the Comshare system and vice versa. “If they couldn’t do that, everybody would rebel,” he says. Comshare has since recognized the problem and developed “some pretty slick ways to cut and paste from Excel,” says Kendall.

Another Web challenge: Poor networks initially made the Comshare system run slowly at the division’s European operating units, hampering acceptance of the new system in a region that Kendall says is already more resistant to change. “There is nothing more frustrating to a user than waiting,” he says. Saint-Gobain is now upgrading its networks throughout Europe.

But even a poor network is better than none. “Saint-Gobain has thousands of little companies around the world,” notes Kendall. The system used for worldwide consolidation by Saint-Gobain’s Paris-based parent is far too expensive and complex to install at all those sites, he says, “but we can put [BudgetPlus] out on everybody’s computer using a telephone line.”

ASP Follower, Not Leader

Another possible use of the Web is the actual delivery of B&P applications — the application service provider (ASP) model, in which a third party not only provides the software but also maintains it on its systems. This is a burgeoning category of B&P software, and includes such players as Closedloop Solutions Inc., Longview Solutions, and Adaytum.

But while moving to browser-based B&P applications provides some clear advantages over more traditional methods, the additional benefits of the ASP model are less obvious. “It makes sense if a company is committed to the ASP model in general, and has its other financial applications delivered that way,” says Meta Group’s Sholler. But despite the general benefits of the pay-as-you-go ASP model, there’s no particular advantage to delivering B&P software as a hosted service. Indeed, many executives are understandably nervous about allowing a third party to handle their actuals, let alone their internal budget forecasts. That trepidation will wane as ASPs become more trusted, predicts Sholler, but B&P software is likely to follow, not lead, the ASP trend.

Where ASP vendors such as Closedloop and others do lead the market, however, is in delivering customized portals to user desktops. Such functionality represents the cutting edge, says Dave Boulanger, service director of the enterprise management systems practice at Boston-based AMR Research Inc. Specifically, such portals can tell users whether they’re meeting the goals they established during the budgeting process. “Such systems really cross the boundaries of traditional financials-based budgeting to incorporate supply-chain and customer factors into the budget process,” says Boulanger.

Automatic Conversion

Role-based portals and “a central, rules-based decision engine” are two other key aspects of centralized B&P applications, says Bettina Zwerdling, senior analyst for financial and administrative applications at AMR. At Ceridian, for example, instead of forcing business managers to convert everything into finance terms, the Adaytum system does that for them. “Our revenue projections can be built up from a sales forecast,” says Varecka.

“The sales force is used to talking about sales,” he continues. “We are trying to get them to think about information that is relevant to their role. The forecasting models can then [calculate] what revenue that’s going to bring in.” Varecka sees other areas in which this approach could be used; for instance, the production centers that provide payroll services. “They can think about volumes of checks — that’s their language,” he says.

Converting planning and budgeting into the language of the business-unit managers is a huge step forward in closing the gap between executive plans and business-unit reality, says Zwerdling, and one that is inextricably linked to the idea of creating customized portals for individual users. “The users all go through our intranet,” notes Varecka. “We put the links to the Adaytum forecasting product where our other financial products are, so it is almost a financial portal.” Ceridian also feeds data to e.Planning from Ceridian Source 500, the human resources system that supports its customers as well as its own internal HR needs. “Already, that has led to a real tightening up of labor expense forecasts,” says Varecka. “We hope to do that in other areas.”

Most analysts say that is exactly what companies should be doing — linking their planning systems to supply-chain, customer relationship management, and other systems that can provide timely notification of changes in the market. “If a supplier can alert you to shortfalls or price changes, you can plug that information into your models,” notes Zwerdling. Such systems can also alert finance executives in near­real time when actuals begin to miss budget numbers, or other relationships begin to show variances. “That is where the CFO gets to play a new, more strategic role in the company — he becomes a problem solver, because he has systems that allow him to respond in a timely way,” says Zwerdling. “And that is what Wall Street responds to.”

Tim Reason is a staff writer at CFO.

Whither ERP?

Why do so many companies with enterprise resource planning (ERP) suites still use third-party software for budgeting and planning? One reason is “the relative lack of functionality in many ERP offerings [compared with] best-of-breed suppliers,” says David Axson, managing director of business strategy at Hudson, Ohio-based Answerthink, a management consulting firm. Another reason is that it’s difficult to enforce ERP as an enterprisewide standard. “If you have a standard like Oracle, PeopleSoft, or SAP, the potential exists to get higher performance if you use that company’s tool set,” says Axson. “But it’s not always possible to be on one system.”

“CFOs expected to get budgeting and planning from ERP eventually,” says Dave Boulanger, service director of the enterprise management systems practice at Boston-based AMR Research Inc. “But the back-end financials had to go in first. Frankly, the ERP vendors dropped the ball and allowed newer vendors to spring up and get a foothold in the market.”

“ERP implementations in the past have focused primarily on automating transaction processing,” admits Tony Kavanagh, senior director of worldwide marketing for Redwood Shores, California-based Oracle Corp. “Budgeting and planning is a very different animal.” But Oracle, for one, doesn’t plan to cede that market space to third-party providers. Instead, it is focusing on high-end planning and analytical tools and applications, contained in its Strategic Enterprise Management suite. Kavanagh predicts that “basic consolidation tools as we know them today will become less relevant as companies move to Internet-based suites that contain all transaction information in a single database.”

Other ERP vendors have also responded to the perceived strategic-planning gap. SAP recently purchased PowerSim — planning software originally developed to handle the extraordinary number of variables involved in the oil exploration business. Pleasanton, California-based PeopleSoft Inc., which AMR analysts say has the most advanced B&P capabilities, has partnered with Hyperion to provide its users with access to Hyperion’s Essbase technology for budgeting. It has also purchased Advanced Planning Solutions to provide strategic-planning capabilities.

“These bigger players are finally marching down a path that says that the world of budgeting and planning is not simply about actuals,” says Boulanger. — T.R.

The Vendors

The software that companies use for budgeting and planning runs the gamut from spreadsheets to application suites that combine planning, reporting, consolidation, and OLAP-based analysis tools. Vendor offerings also cast a wide net, defying easy categorization. The functionality of many of the offerings listed below spans multiple categories, but here’s a look at where they really shine.

Web-based Enterprise Budgeting and Planning

Browser-based B&P tools eliminate the need to maintain client applications and allow a greater number of planners to input B&P data. These tools also emphasize links to supply-chain, CRM, and other systems, and are geared to real-time decision-making rather than the annual budgeting process using only historical financial data. The same tools also enable rolling forecasts, rules-based alerts, and top-down, bottom-up collaboration.

Vendor

Product

A3 Solutions

A3 Profit Center

Adaytum

e.Planning

Closedloop Solutions

SpendCap Manager, Biz Plan Manager, TopLine Manager

Comshare

BudgetPlus

ebudgets.com

ebudgets

Hyperion Solutions

Hyperion Financial Management, Hyperion Planning

OutlookSoft

Everest

SRC

Budget Advisor

Business AnalysisTools that use OLAP functionality to provide multidimensional analysis.

Vendor

Product

Brio Technology

Brio.Enterprise

Business Objects

WebIntelligence, Business Objects 5i

Cognos

PowerPlay

Hyperion Solutions

Essbase

MicroStrategy

MicroStrategy 7.0

SAS Institute

CFO Vision

Silvon

DataTracker

Financial ConsolidationsThird-party systems used to consolidate data from multiple financial applications from different vendors. Includes complex logic to handle currency conversion and intercompany requirements.